DCF (Discounted Cash Flow) and LBO (Leveraged Buyout) models are two of the main types of financial models used by our clients within the Investment Banking sector.

So, what are they and when are they used?

A DCF model is a method of valuing a company or a project by forecasting its future cash flows and then discounting them back to the present value. The discount rate used in the DCF model reflects the opportunity cost of investing in the company or project, it also takes into consideration the level of risk. This type of model is typically used when evaluating investments, such as companies, projects, and real estate, as well as for valuing both public and private companies during the mergers and acquisitions process.

A LBO model is a financial model used to evaluate the feasibility of a leveraged buyout (LBO), which is the acquisition of a company using a significant amount of debt to finance the purchase. An LBO model is used to simulate the cash flow projections and the capital structure of the company after the acquisition. This allows the interested company/ parties to determine if the company can service its debt and generate enough cash flow to meet its financial obligations. LBO models are generally used by Private equity firms and investment banks to evaluate the potential returns of a leveraged buyout.